Markets & Finance

Nestle Dips ahead of Results

October 18, 2005

From Standard & Poor's European MarketScope

France

SPIR fell €25.70 to €131.40. Cheuvre lowered its price target to €148 from €168 and keeps its underperform rating as the stock plunged in morning trading Wednesday after the company warned of pressures on its operating margin despite unveiling 9-month sales up 12.1% to €420.8 million. The company sees fiscal 2005 margins down to 14.5%, vs. former guidance of 16.5%. Cheuvre recommends maintaining a cautious stance.

OBERTHUR fell €0.52 to €7.45. The company reported good third quarter sales of €124.5 million, up 15.8% year-over-year. Sales were driven mainly by a rise in sales of microprocessor cards and other personalization services, selling 48 million cards in the third quarter, up 31% from third quarter 2004. Oberthur also reported 9-month sales of €363.8 million, up 15.4%. The company maintains its fiscal 2005 positive guidance despite the slight decline in banking due to strong comparables.

TOTAL (TOT) fell €4.50 to €202.90. The U.S. Department of Energy weekly inventories report showed a higher than expected build in crude and gasoline inventories. WTI crude oil eased US$1.00 per barrel on the news to US$62.20.

Germany

MAN declined €1.29 to €37.52. The company reportedly may be interested in buying RWE's paper and cellulose unit, which has sales of about €230 million a year.

HYPOVEREINSBANK was down €0.49 to €22.51. UniCredito, according to the German press, is aiming to become the biggest retail bank in Germany by 2008 with the acquisition of HVB and significant investment.

IWKA declined €0.39 to €18.71. Stakeholder Wyser-Pratte said he doesn't plan to break up the company. But Ikwa is reportedly in talks with several interested parties to at least sell its troubled Ex-Cell-O unit.

Italy

B. POP. ITALIANA fell €1.55 to €6.19. According to Il Sole 24 Ore, the move of Deutsche Bank, which yesterday sold 34.5 million of RCS's shares via accelerated offering, might have hindered the company in its decision whether to carry out a similar operation on part of the RCS stake it holds as security from property developer Stefano Ricucci (14.6%). In addition, according to the Italian press, worrying results are emerging from the Bank of Italy and the Italian Financial Police probe on the company. In particular, concerns arise about the possible legal implications for the company of alleged false accounting. In a statement, the company denied all the rumored charges.

BENETTON was down €0.48 to €8.19. The Benetton family is selling some of its properties in New York to raise liquidity to carry out new investments, reports Finanza & Mercati.

Netherlands

AKZO NOBEL was up €0.34 to €36.09. The company reported third quarter net profit down 66% to €175 million, EBIT of €280 million, and sales up 2.4% to €3.30 billion, all within consensus expectations. Also, the company kept its fiscal year net profit outlook of about €800 million. Akzo's CFO says he does not exclude share buybacks in 2006, while he sees more job cuts in coatings and chemicals next year. ING says most divisions were at or slightly above its estimates. ING reiterated its buy rating and €38.0 target. Rabo Securities also thinks third quarter results were better than it had expected. Reiterates neutral, €37.0 target. Petercam also says figures beat its estimates. Reiterates hold.

Nordic

TIETOENATOR fell €0.89 to €26.47. The company's third quarter operating profit excluding capital gains comes in at €34.6 million, vs. €23.7 million in the 2004 third quarter, representing a margin of 9.1%. Pretax profit was €27.3 million, down from €102.0 million in the previous year, on net sales up 15% year-over-year to €380.4 million. Third quarter EPS amounted to €0.24, vs. €1.09. Looking ahead, the company sees fourth quarter sales up 7%-10% year-over-year, with organic growth rising to a level of 5%-10% in early 2006. It put fourth quarter EBIT margin between 10% and 12%.

ERICSSON (ERICY) declined SEK0.50 to SEK26.50. Rival Motorola reported a more than threefold increase in quarterly profit, thanks to the Razr and other popular mobile phones. Motorola says third quarter mobile phone shipments rose 66% to 38.7 million, while mobile sales rose 41% to US$5.60 billion. Separately, the company's head of China, Mats Olsson, sees 2005 as an "in-between year" in China due to delays in getting orders and licenses issued, daily Dagens Industri writes. It adds that Olsson still sees 2005 as a strong year in China, but that business has been slower than expected.

STATOIL fell NOK3.75 to NOK134.25. The company has been awarded interests in two deepwater blocks off Brazil.

ENAGAS declined €0.36 to €14.12. Caja Madrid notes that the Spanish government could approve the new Energy Plan this Friday.

EADS (Sp)fell €0.85 to €28.14. Thales has become the sole owner of TDA Armements after the company sold its 50% stake. Financial details of the deal remain undisclosed, but the sale is expected to be finalized by the end of fiscal 2005.

IBERDROLA shed €0.13 to €22.27. The company is due to report third quarter/nine-month results Thursday. Goldman Sachs thinks the results should be positively affected by the increased profitability of wind farms, and estimates 14% year-over-year EPS growth for third quarter. Citigroup anticipates 10% EBITDA growth and 13% net income growth.

REPSOL YPF (REP) fell €0.32 to €24.55. In Brazil's annual auction of oil and gas concessions, the company, along with BG Group, has won two shallow water blocks for US$75.3 million. The company also won eight shallow water Santos Basin blocks as a lone bidder, paying a combined US$17.8 million for the exploration rights to these.

TELEFONICA (TEF) fell €0.05 to €13.77. The Brazilian telecoms regulator - Anatel - has published customer data for September. Cinco Dias reports the figures show that Vivo, a joint venture between Telefonica Moviles and Portugal Telecom, lost market share, falling to 36.05% from 36.47%. Both America Movil and Telecom Italia gained market share.

Switzerland

ROCHE fell CHF6.20 to CHF186.50. The company reported none-month group sales of CHF25.44 billion, up 16% (+17% in local currencies); sales in the Pharma division rose 20% to CHF19.43 billion; Diagnostics rose 4% to CHF6.00 billion. Roche says third quarter sales rose 17% to CHF8.82 billion, adding that it gained additional market share in the Pharmaceuticals Division. Roche confirmed fiscal year sales and profit forecasts.

NOVARTIS (NVS) was up CHF0.45 to CHF68.90. Following the release of third quarter results Tuesday, Goldman Sachs upgraded the shares to outperform from in line. At the same time, UBS lifted its its price target on the stock to CHF78 from CHF76 while maintaining buy. Deutsche Bank lifted its target to CHF75 from CHF72, buy. Bank Sarasin lifted its target to CHF72 from CHF67, keeps neutral. Cheuvreux upped its its target to CHF72 from CHF68 but rates the stock underperform. Finally, S&P Equity Research raised its target to CHF69 from CHF62, keeping hold.

NESTLE fell CHF10.25 to CHF365.50. The company is due to report third quarter sales Thursday. S&P Equity Research forecasts an increase of 5.5% in organic sales, with an estimate of 3.3% for RIG (real internal growth, i.e., combined volume and sales mix) and forecasts a 2.2% increase in pricing. S&P blieves Nestle will report good results across all of its divisions, with very strong performance expected for the beverages and milk and ice-cream divisions. S&P rates the shares buy and has a price target of CHF382..

UK

GLAXOSMITHKLINE (GSK) fell £0.05 to £14.56. The stock survived Wednesday's sell-off with minor pain on hopes on hopes its anti-flu drug Relenza could be used as a backup to Roche's Tamiflu in averting the severity of the avian flu, in case of a pandemic.

ROYAL DUTCH SHELL (RD) fell £0.42 to £17.60. CSFB cut its EPS estimates across the board in the oil sector. The broker says weak trading statements from Chevron (outperform), ConocoPhillips (neutral), and BP (neutral) and some evidence of a demand slowdown in the key U.S. market has heralded a bout of profit taking in oil equities. CSFB notes the company continues to show negative year-over-year volume growth because of hurricanes.

BARCLAYS (BCS) shed £0.10 to £5.29. Morgan Stanley assumed coverage of the shares with overweight, vs. underweight, on a changing business mix; it has a new target price of £6.50 from £5.48, implying an 18% upside.

RIO TINTO (RTP) fell £0.84 to £21.34. The company says the strong operational performance of the year's first half continued through the third quarter, with most operations producing at, or near, capacity. It reports third quarter molybdenum production up 21% quarter-over-quarter and Hamersley shipped record volumes of iron ore. It adds refined copper production returned to normal following the smelter maintenance shut-down in the second quarter. Year-to-date alumina production was 42% above the first nine months of 2004 but third quarter alumina production was 7% lower, quarter-over-quarter.